CHICAGO — Large-cap growth funds led Pensions & Investment’s ranking of the top-performing equity mutual funds most used in defined contribution plans for the year ended Dec. 31.
The top five funds — and seven of the top 10 — were large-cap growth. Rounding out the top 10 were two midcap growth funds and one small-cap blend.
The latest performance ranking, based on Morningstar Inc. data, found the top 10 equity managers delivered gains of between 20.34% and 35.94% for the 12 months. For the same period, the Russell 3000 index gained 5.14%.
The $12.7 billion Janus Twenty took the top spot for the year with a 35.94% return, followed by another Janus large-cap growth fund, the $5.5 billion Janus Adviser Forty, which had a 35.57% return. Both are managed by Janus Capital Group Inc., Denver.
Funds of Boston-based Fidelity Investments came in third through fifth place: The $6.2 billion large-cap growth Independence fund, 29.54%; the $9.1 billion large-cap growth OTC Portfolio, 26.14%; and the $6 billion large-cap growth Advisor Growth fund, 26.09%.
Rounding out the top 10 were the $11.6 billion small-cap blend Neuberger Genesis fund, 21.89%; the $10 billion large-cap growth American Century Ultra, 21.83%; the $11.5 billion midcap growth Federated Kauffmann, 21.4%; the $5.5 billion midcap growth Artisan Midcap, 21.2%; and the $4.8 billion large-cap growth BlackRock Fundamental Growth.
(Click here for the one-year performance of equity mutual funds most used by defined contribution plans, here for the five-year performance of equity mutual funds most used by defined contribution plans, here for the one-year performance of bond mutual funds most used by defined contribution plans, and here for the five-year performance of bond funds most used by defined contribution plans.)
Tom Telford, co-manager of the American Century Ultra fund, offered by American Century Investments, Kansas City, Mo., said holdings in the consumer staples, technology and financial sectors benefited his fund for the year. The fund avoided banks, real estate investment trusts and other companies affected by credit crunch and subprime mortgage problems. Instead, the fund had holdings in T. Rowe Price Group Inc., The Charles Schwab Corp. and CME Group Inc.
“Our financials did really well despite what was going on with other financials,” Mr. Telford said.
The fund, which has 80 holdings, was overweight in technology stocks for the second half of the year, with Google Inc. the largest position for that period, Mr. Teleford said. Apple Inc. was also a top 10 holding for the year and did well, he said. MasterCard Inc. also contributed positively to the fund’s performance, because the use of credit cards is growing overseas, he said.
MEMC Electronic Materials Inc., AFLAC Inc., Monsanto Co., Medco Health Solutions Inc. and Express Scripts Inc., were also winners for the fund, Mr. Telford said.
While value stocks were in favor over the past seven years, growth stocks came back into favor for the last part of 2007, Mr. Telford said, which could explain why so many of the best performing funds for the year ending Dec. 31 were large-cap growth.
One exception was the Genesis fund, which was the only small-cap fund in the top 10. Judy Vale, co-manager of that fund, said overweight holdings in the energy and health-care sectors and underweight holdings in the financial services and consumer discretionary sectors explained the fund’s performance for 2007. Executives at New York-based Neuberger Berman LLC predicted nearly two years ago the financial and consumer spending sectors might start to decline and began reducing those holdings then.
“We were nervous of the mortgage markets very early,” Ms. Vale said, adding the reductions hurt the fund in 2006, but helped it in 2007. “We ran from financials and consumer spending and went with what we call ‘steady eddies’: Stocks that do well even when economic winds are not blowing in the right direction.”
The fund, which holds around 140 stocks, focuses on high-quality companies that can generate their own cash flow.
Ms. Vale said small-cap companies sometimes get a bad rap because they need access to outside financing, which can make them vulnerable in a hostile capital markets environment.
“These companies, however, can self-fund their growth,” Ms. Vale said of her fund’s holdings. “With this kind of environment, we’re really seeing the difference between quality and non-quality companies.”
Some of the winners in the fund’s health-care sector included BioTex Inc. and dental suppliers Henry Schein Inc., Patterson Cos. Inc. and DENTSPLY International Inc. Another winning area was the veterinary market, because those companies do not depend on medical reimbursements, Ms. Vale said. Some veterinary companies that did well included VCA Antech Inc., MWI Veterinary Supply Inc. and IDEXX Laboratories Inc.
In the energy sector, Foundation Coal Holdings Inc., National Oilwell Varco Inc., Flow-Tech Industries Inc., Petrobank Energy and Resources Ltd. and Quicksilver Resources Inc. were winners for the fund, Ms. Vale said.
For the five years ended Dec. 31, the Fidelity Leveraged Company Stock fund was the top equity fund with a compound annualized return of 31.81%. Lord Abbett Small-cap Value-Y came in second with a compound annualized 21.12% return, followed by Hartford Capital Appreciation HLS, 21.75%; Lord Abbett Small-cap Value-A, 21.71%; and Janus Twenty, 21%.
Among fixed-income funds, Pioneer High Yield-Y had the best performance for the year ended Dec. 31, returning 12.73%. Tied for second were the PIMCO Real Return and Vanguard Inflation Protected Securities funds at 11.59%; Vanguard Long-term U.S. Treasury, 9.24%; and PIMCO Long-term U.S. Government, 9.2%.
The top five bond funds for the five-year period ended Dec. 31 were Fidelity Advisor High Income Advantage, with a compound annualized return of 15.28%; Fidelity Capital & Income, 14.06%; Loomis Sayles Strategic Income, 13.94%; Pioneer High Yield-Y, 12.76%; Loomis Sayles Bond, 12.61%.
